Plummeting house prices will take their toll on the US economy next year wiping half a percentage point off GDP growth, according to a top bond investor.

Quentin Fitzsimmons, head of government bonds at Threadneedle Investments, has slashed his forecast for US growth next year to 2% from 2.5%, after the S&P/Case & Schiller US National Home Price Index fell 3.2% in the last quarter compared to the same period last year.

He said: "You have to go back to the great depression in the 1930s to see a similar decline. The US residential real estate market is the elephant in the room for the global economy."

He added that property futures markets were forecasting a further decline in US real estate prices of up to 5% in the next year. With property twice as important to the average American as the stock market, the impact of a 10% decline in house prices would be equivalent to a 20% stock market crash, according to Fitzsimmons.

Adi Sorber, global equities portfolio manager at ABN Amro Asset Management, said he expected "worse to come" from the US property market, as low introductory mortgage rates were reset at higher levels over coming months.

Fitzsimmons said the language used in the latest release from the US Federal Reserve Open Markets Committee indicated the central bank was increasingly concerned, suggesting risks to economic growth had grown "appreciably".

"Central bankers don't use words like that unless they mean it," he said. While he expects interest rates to fall in the US, Fitzsimmons does not expect rapid or drastic action. "This will be pretty protracted, it is a 12 to 18 month game at least."

He added that the current market distress bore little similarity with the markets crisis of 1998, when Russia defaulted on its debt and the Long Term Capital Management hedge fund went bust. "This is about residential real estate which on the face of it is a much bigger problem more akin to the savings and loan crisis of the early 1990s."

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Plummeting house prices will take their toll on the US economy next year wiping half a percentage point off GDP growth, according to a top bond investor.

Quentin Fitzsimmons, head of government bonds at Threadneedle Investments, has slashed his forecast for US growth next year to 2% from 2.5%, after the S&P/Case & Schiller US National Home Price Index fell 3.2% in the last quarter compared to the same period last year.

He said: "You have to go back to the great depression in the 1930s to see a similar decline. The US residential real estate market is the elephant in the room for the global economy."

He added that property futures markets were forecasting a further decline in US real estate prices of up to 5% in the next year. With property twice as important to the average American as the stock market, the impact of a 10% decline in house prices would be equivalent to a 20% stock market crash, according to Fitzsimmons.

Adi Sorber, global equities portfolio manager at ABN Amro Asset Management, said he expected "worse to come" from the US property market, as low introductory mortgage rates were reset at higher levels over coming months.

Fitzsimmons said the language used in the latest release from the US Federal Reserve Open Markets Committee indicated the central bank was increasingly concerned, suggesting risks to economic growth had grown "appreciably".

"Central bankers don't use words like that unless they mean it," he said. While he expects interest rates to fall in the US, Fitzsimmons does not expect rapid or drastic action. "This will be pretty protracted, it is a 12 to 18 month game at least."

He added that the current market distress bore little similarity with the markets crisis of 1998, when Russia defaulted on its debt and the Long Term Capital Management hedge fund went bust. "This is about residential real estate which on the face of it is a much bigger problem more akin to the savings and loan crisis of the early 1990s."